The Potential Impact of US Tariffs On Malaysia’s Defence Ties

The Potential Impact of US Tariffs On Malaysia’s Defence Ties

INTRODUCTION
This report outlines the anticipated consequences of President Donald Trump's recent "reciprocal" tariffs on Malaysian exports. Effective 9 April 2025, the US imposed a 24 per cent import levy on all Malaysian goods. This measure forms part of broader trade policies targeting countries with trade surpluses with the US.

EXPECTED ECONOMIC IMPACT
2. The Malaysian trade ministry has cautioned that these tariffs could halve the nation's trade growth in the current year. MIDF Research forecasts a potential decrease in total exports ranging from 1.3 to 5.8 percentage points. Key Malaysian export sectors that are expected to be significantly affected include machinery and equipment, medical machines and optical parts, rubber products, and furniture. Interestingly, semiconductors have been exempted from these tariffs due to their strategic importance. The new US tariffs pose a considerable risk to Malaysian exports, potentially reducing trade growth. The tariffs specifically target Malaysia's trade surplus with the US, impacting export-heavy industries like electronics and machinery. Interestingly, Malaysian glove stocks have rallied, as the imposed tariff is comparatively more favourable than those levied on key competitors like China and Thailand.

MALAYSIAN GOVERNMENT'S RESPONSE
3. Based on media reports, MITI intends to pursue diplomatic solutions and dialogue with the US, explicitly ruling out retaliatory tariffs. This strategy involves leveraging existing platforms such as the US-Malaysia Trade and Investment Framework Agreement. Observers argued that Malaysia's approach of pursuing dialogue rather than retaliation signals its intent to maintain constructive relations with the US. Malaysia's decision to leverage existing frameworks like the Trade and Investment Framework Agreement and pursue agreements in high-tech sectors (e.g., semiconductors) may help mitigate tensions and maintain cooperation.

COMMENTS
4. The imposition of a 24% reciprocal tariff by the United States under President Donald Trump is unlikely to directly affect defence ties between Malaysia and the US. Malaysia and the US have longstanding defence partnerships, including joint military exercises, defence diplomacy and arms procurement. Strategic interests rather than trade dynamics typically govern these. Thus, tariffs targeting trade imbalances may not directly disrupt defence ties unless they escalate into broader diplomatic tensions. However, prolonged economic or diplomatic fallout could indirectly influence Malaysia's capacity for defence collaboration with the US.

5. Therefore, MINDEF and MAF should continue pursuing dialogue and engagements that preserve defence ties, as retaliatory measures might strain overall bilateral relations. However, suppose Malaysia plans to acquire arms from other countries as an act of retaliation. In that case, it must be seen as a cost-effective, practical measure to maximise outcomes and minimise unnecessary expenditures.

6. Malaysia’s measured response, focusing on engagement and negotiation with the US to find mutually beneficial solutions and mitigate negative economic impacts, suggests efforts to avoid any negative spillover into strategic partnerships.

Prepared by
Mr. Ahmad Tajuddin bin Mohd Said
Assistant Director
Contemporary Security
MiDAS
4 April 2025